1.0 Abstract
This paper intends to create a strategic management plan for Sime Darby Plantation. The management plan also assesses the factors of profit declining in the company and set a few goals to achieve. The management plan addresses the constantly changing business environment, the financial crisis, price fluctuation, weather condition and government intervention into consideration. The tools used to assess the internal and external environment are SWOT, PEST, Porter 5 forces, EFE Matrix, VRIO Framework, IFE Matrix. The result from analysis will reveal how attractive the alternative strategies and enhance the quality of strategic decision of top management before making any decision which strategy that suit best to Sime Darby.
Keywords: Palm Oil, Profit decline, Plantation, Environment
2.0 Introduction
Demand for palm oil is growing up now. At the moment, many company need palm oil as material for their products, Malaysia and Indonesia addressed as the largest palm oil users in Asia region. Palm oil plantation cannot planted in any place, it must have appropriate climate. Tropical rain forest and peat lands in South East Asia become suitable area for palm oil plantation. Sime Darby Berhad was created in 2007 through a merger of Sime Darby Berhad, Golden Hope Plantations, and Kumpulan Guthrie Berhad Group of Companies. William Sime and Henry Darby was founder of Sime Darby in 1910. In 1981, In November 30th, 2007 synergy drive re-entered the stock market under the name of Sime Darby with a market capitalization of RM 59.5 Billion at the start of the merger process (Sime Darby History, 2013).
Sime Darby Berhad is a multinational company conglomerate involve in 5 core of business such as Plantations, Property, Industrial, Motors, and Energy & Utilities. Sime Darby Plantation (SDP) is plantations and agri-business arm of the Sime Darby Berhad which the division areas spread in 3 countries which are Malaysia, Indonesia, and Liberia. Tan Sri Dato’ Abdul Ghani Othman as a
chairman of SDP. The plantations involve the full spectrum of palm oil value chain, which divided in two operations. It’s upstream operation, which co nsist of oil plantation & mills, rubber
plantation & factories, and pink guava with the total 534,245 hectares spread over. Further, midstream & downstream operation, which consist of palm oil refineries, kernel crushing plants, production of edible oil and fats products, biodiesel production, oleochemicals production, pink guava juices, production of value added products from renewable based feed stocks, Phytonutrient Tocotrienol vitamin E, composting plants, and biogas plants with the total area 860,454 hectares spread over. (Sime Darby Plantation, 2013)
SDP is the largest Certified Sustainable Palm Oil (CSPO) in the world which noted 93% produced annual crude palm oil and 94% annual palm kernel production. The Th e highest production CSPO in FY 2014 at 2.14 Million MT and followed by palm kernel at 0.49 million MT. In year 2014 the amount of employed Sime Darby Plantation nearly 80,000 people with separated in many areas (Ernst &Young, 2014).
3.0 Company Profile 3.1 History
The company brand has been around for over 100 years and was started in Malacca in 1910. The founders of the Sime Darby are Alexander Alex ander Guthrie, Daniel and Smith Harrison, Joseph Crosfield,
Sime Darby Berhad is a multinational company conglomerate involve in 5 core of business such as Plantations, Property, Industrial, Motors, and Energy & Utilities. Sime Darby Plantation (SDP) is plantations and agri-business arm of the Sime Darby Berhad which the division areas spread in 3 countries which are Malaysia, Indonesia, and Liberia. Tan Sri Dato’ Abdul Ghani Othman as a
chairman of SDP. The plantations involve the full spectrum of palm oil value chain, which divided in two operations. It’s upstream operation, which co nsist of oil plantation & mills, rubber
plantation & factories, and pink guava with the total 534,245 hectares spread over. Further, midstream & downstream operation, which consist of palm oil refineries, kernel crushing plants, production of edible oil and fats products, biodiesel production, oleochemicals production, pink guava juices, production of value added products from renewable based feed stocks, Phytonutrient Tocotrienol vitamin E, composting plants, and biogas plants with the total area 860,454 hectares spread over. (Sime Darby Plantation, 2013)
SDP is the largest Certified Sustainable Palm Oil (CSPO) in the world which noted 93% produced annual crude palm oil and 94% annual palm kernel production. The Th e highest production CSPO in FY 2014 at 2.14 Million MT and followed by palm kernel at 0.49 million MT. In year 2014 the amount of employed Sime Darby Plantation nearly 80,000 people with separated in many areas (Ernst &Young, 2014).
3.0 Company Profile 3.1 History
The company brand has been around for over 100 years and was started in Malacca in 1910. The founders of the Sime Darby are Alexander Alex ander Guthrie, Daniel and Smith Harrison, Joseph Crosfield,
William Sime and Henry Henry d’Esterre and Herbert Mitford Darby. Darby. In year 2007, the three three big
companies such as Sime Darby, Guthrie and Golden Hope are merged and were named Synergy Drive. Later, Synergy Drive was renamed as Sime Darby Berhad (Sime Darby Berhad, 2013a).
From the information in Sime Darby 2014 annual report, Sime Darby’s core businesses are plantations, property, motor, heavy heav y equipment and energy & utilities. That’s why this company
is being known as an international conglomerate. The number of employees in year 2014 was 103,507 people. Sime Darby runs their operation in 26 countries and territories including Taiwan, Thailand, Germany, Liberia and many more. Total market capitalization of Sime Darby in year 2014 is RM58.6 billion. The largest shareholder of Sime Darby is Permodalan Nasional Berhad followed by the Employees Provident Fund or EPF and others.
3.2 Vision
To be a leading multinational corporation delivering d elivering sustainable value to all stakeholders.
3.3 Mission
Sime Darby is committed to developing a winning portfolio of sustainable business
We subscribe good corporate governance and high ethical values
We continuously strive to deliver superior financial returns through operational excellence and high performance standards
We provide the environment for our people to realize their full potential
3.4 Company structure
Source from : http://m.kinibiz.com/tag/sime-darby : http://m.kinibiz.com/tag/sime-darby
4.0 Industry profile
Local competitors for Sime Darby are Felda Global Ventures and IOI Corporation
Felda Global Ventures Holding Berhad is a private limited company and operating under Federal Land Development Authority. They are engage in 6 main business such as palm upstream, palm downstream, sugar, rubber, R&D and agribusiness services and transport, Logistics, Marketing and Others. IOI was located in Malaysia and they are committed to have a good palm oil practices. IOI was involved in 3 core business which is the plantation
that includes the cultivation of palm oil and palm oil extraction, resource-based manufacturing and property.
International competitors of Sime Darby are Wilmar International Limited, Golden AgriResources Limited
Wilmar International Limited was located in Singapore and one of the Asia's leading agribusiness groups. Business activities almost similar to Sime Darby such as oil palm cultivation, biodiesel and production of fertilizer. It was known as a company who provide high quality processed agriculture product for food industry. Golden Agri-Resources Ltd is the world's second largest palm oil plantation company and it was located in Indonesia. Primary activities include palm oil cultivation, palm kernel, palm oil and also involved in food industry.
5.0 Analysis on vision and mission statement Vision statement :
“To be a leading multinational corporation delivering sustainable value to all stakeholders”
Based on the analysis of vision statement of Sime Darby, the vision is a good statement. It can answer the basic question of what do we want to become. The readability of the vision statement is also good.
Mission statement :
•
Sime Darby is committed to developing a winning portfolio of sustainable business
•
We subscribe good corporate governance and high ethical values
•
We continuously strive to deliver superior financial returns through operational excellence and high performance standards
•
We provide the environment for our people to realize their full potential
Checklist for Nine (9) Mission Statement Components No
Component
Statement
1.
Customer
NIL
2.
Product or Services
NIL
3.
Market
NIL
4.
Technology
NIL
5.
Concern for survival,
We continuously strive to deliver superior financial
growth and profitability
returns through operational excellence and high
performance standards 6.
Philosophy
We subscribe good corporate governance and high ethical values
7.
Self-concept
We continuously strive to deliver superior financial returns through operational excellence and high performance standards
8.
Concern for public image
Sime Darby is committed to developing a winning portfolio of sustainable business
9.
Concern for employees
We provide the environment for our people to realize their full potential
Table 5.1 : Checklist on nine components in mission statement
From the analysis of mission statement, Sime Darby meets five out of nine elements. The statement is lack of four components which are customer, product or services, market and technology. Sime Darby’s mission doesn’t mention about who are their customers, what type
of product or service they want to offer to customer, where does Sime Darby compete in market and the current technology. Therefore, Sime Darby should revise and reexamine back their mission statement.
6.0 External environment 6.1 PESTEL
PESTEL analysis focuses on the factors at the macro level (the external environment) include political, environment, social, technological, economic and legal. In general, all these factors have their own sub-factors and its own influence in the business world. According to Haim Hilman, basically companies need a good macro environment, like political stability, a growing economy, good socio-cultural, technological support the growth of industry, environmental issues that support the development of industry and industry-friendly legal. So that, important for Sime Darby Plantation to understanding PESTEL analysis. Politic
The first factor of PESTEL is political. Political issues related to the SDP got a charge that the industrial oil palm plantations result in deforestation that are not healthy. Development Program of the United Nations guidelines also regulates the field. Satellite image of deforestation in Borneo has attracted the attention of environmental organizations such as WWF, Greenpeace and Rainforest Rescue (“Tropical Forest News,” 2015). For example, in 1967 and 2000, increasing
the total area of about 2000 square kilometers to more than 30,000 square kilometers of palm cultivation in Indonesia has become a cause of deforestation and illegal logging is rapidly increasing (Wikipedia, n.d.). In addition, Greenpeace states that one of the reasons of deforestation in Malaysia and Indonesia is because the process is needed for oil palm plantations, the burning of tropical forests for oil palm cultivation has also led to a massive increase in carbon leavers produces because large quantities of smoke into the atmosphere and it has become one of Indonesia became the third highest transmitter of greenhouse gases in the world (CNN, 2012).
Environment
The second factor is related to the environment. Environment such as forests are vital to all life, especially human or animal because the forest is a place of residence, source of opinion, a watershed, shelter and so on. Therefore, the increase in palm oil production SDP has caused harm or negative impact on tropical forests and wildlife habitats. According to a report by the United Nations Environment Programme (UNEP) published in 2007 argued that the main reason of rainforest destruction happened in Malaysia and Indonesia are caused by the oil palm industry and also believes that perhaps by 2022 the forests in Indonesia by 98 percent would be destroyed because illegal logging and illegal, forest fires and the development of oil fields and refineries for biodiesel filter (The Environment News of UNEP, 2007). However, in recent years, the SDP has shown good commitment in preserving the environment. A variety activity have been undertaken by the SDP to preserve of environment and conversation of biodiversity such placing a biogas power plant for the purpose of reducing the carbon emission , zero burning replanting of the area, it is forbidden to clean the areas with high conservation value (Sime Darby Berhad,
(2014b). Furthermore, SDP has also introduced a replacement for petroleum oil biodiesel and will be used soon in the future (Malaysian Palm Oil Council, 2012). Therefore, the use of biodiesel is important as it can reduce environmental pollution compared to petroleum oil usage.
Social
Sime Darby Foundation is one of the SDP initiatives that established to share value and contribute to social and environmental. With this, there are various projects that have been implemented by Yayasan Sime Darby to contribute to society and the environment, such as the School Makeover Project, Project Save Our Waterfall, Bakau initiatives. (Sime Darby Plantation, 2011a)
In addition, social factors also can improve people's life and promote the wellbeing especially the community of Indonesia. Palm oil is a valuable cash crop and provides a human resource of society. It enables a small landholder to participate in the economy that can generate the cash and often leads to an increase in local infrastructure. From this, Sime Darby Plantation has improved quality of life of community in Indonesia by providing a medical clinic, improving infrastructure like highways, schools and houses of religion. So at this time, the improvements have been successfully providing more than 15,000 houses for local people (Sime Darby Plantation, 2011b).
Technology
For technology factor of SDP is have good cooperation between the two agencies in Malaysia and Indonesia, the Malaysian Palm Oil Board's (MPOB) and Indonesian Oil Palm Research Institute (IOPRI) will try and provide support to develop good techn ologies and techniques of the
eco-friendly in oil palm. For example, SDP also use a plug best agriculture technique such as biological control, pest control and zero burning to support the eco-friendly practices in palm oil plantation (Greenpeace International, 2008).
Economic
Economic factor is very important for a country because it can be improved or developed countries. Sime Darby Plantation greatly affected the Malaysia National Economic primarily because it is a major exporter of country and SDP at the fourth place for the largest contributor to the national economy because there are huge increasing in expected gross national income (GNI) from RM53 billion in year 2009 (Malaysia Economic report 2011). The performance of the oil industry in the country is seen to improve with some improvements, especially in the number of crude palm oil production of 11.3%, which is 18.91 million tones in 2011 compared to 16.99 million tons in 2010. Malaysia's Economic Transformation Programme states are now actively promoting the country's palm oil after the commodity identified and is believed to be one of the national key economic areas (NKEA) to be transformed include the entire value chain and farming activities until the product is ready. In addition, the Economic Transformation Program aims to achieve a GNI palm oil as RM 178 billion by 2022 (Annual Report of the Economic Transformation Programme, 2012).
Legal
To successfully conduct business in other countries, SDP has always respected and have a high awareness of the law in all the countries they operate. SDP have a strict internal policies and zero tolerance for non-compliance standard for their operation. In order for SDP to meet the necessary
need of the Roundtable on Sustainable Palm Oil, SDP always regulates the guidelines of plantation with committed to operational sustainability (Sime Darby Berhad, 2014b).
6.2 Porter 5 forces
Michael E. Porter is the person who has organized the analysis of porter in 1980. The underlying concept of this theory is that there are five forces determine the competitive intensity and attractiveness of the market. In general, Porter ’S five forces strength is a simple tool to analyze the company, where the power of the business lies is located. It is very useful to understand the power of what you have on your current business and making it into consideration. To understand where of lies, you can take advantage of the strengths and weaknesses of your anticipation. In other words, it's helpful to understand the strengths and weaknesses of the company. Rivalry among existing competitor : HIGH
Threat to the rivalry among excisting competitor SDP is quite high, because the limited number of production due to resulting its geographic area, while the number of player in the market very much. The highest number of player in the market can be separate in 2 part, major and minor player. Further, major player as follower close behind to SDP, Sample of this, another big plantation company, such as Felda Global Venture in Malaysia and PT. Golden Agri Resources, Wilmar International Group, and Perkebunan Nusantara (PTPN) IV in Indonesia. In the other hand, minor player played by private sector under corporate and personal keep increasing to taking chances and observing developments.
Threat of New Entrants : LOW
Threat to the entry of new competition which is how they can get into the market. In general, the market has great profitability will attract new companies. It means that, the probability of new entrans keep increase. But, in SDP threat of new entry is quite low. The high of market profitability of oil plantation and rubber does not followed to the new entrans competition, because of the capital to start up oil plantation company and palm oil plantation mill are very high. SDP is a leader in Research & Development (R&D) that always introduce and develop their new technology which will be reference to others plantation company. Further, SDP also requires a series of approvals and inspections as government policy to ensure that the SDP follows the rules of health, safety, and environmental owned by the state. Based on this, the purposes are to maintain and built employees and public trust. So, the opportunity of new entrans will be diminish. Threat of Substitute products or service : HIGH
Threat of substitutes for palm oil in SDP is high due to several factors. Open palm oil land needed extensive forest clearing, it can directly affect the state of the environment ecosystem. The production of palm oil often uses more fertilizer abundant waste product that can cause the flow of polluting local waterways. Moreover, threats arise from the conversion of peat land carbon-rich plantations, peat this terrible enormous release carbon dioxide into the atmosphere (wetlands of international Silvius, 2008) due to these factors, the high threat of replacement of palm oil. Although the results of palm oil quadrupled from other production, there are many other substitutes in the market, such as corn oil, soybean oil, sunflower oil, and olive oil. Among the products that substitute products, olive oil most nutritious and healthy.
Bargaining power of supplier : LOW
SDP requires quality raw materials, namely seeds, fertilizers, and soil. To obtain seeds, SDP can take from existing ones today. This can reduce expenses, because it does not have to pay extra to buy seeds. SDP also can manage the rest of the fruit of which can be used as fertilizers. Therefore, SDP can produce seed and fertilizer from their own plantations. SDP make a good relationship to the supplier by provide commitment, SDP creates a networking bussiness to the future needs and determine how the suppliers provide satisfaction to the goods they need. Usually SDP buy from suppliers if they are experiencing a shortage, but this is rarely in the case. The nursery SDP, which is involved in this activity are the upstream and downstream are involved directly in the market. Bargaining power of buyers : LOW
Demand for palm oil is increase from time to time, but the price has been determined. Increase demand cause of many company use oil plantation and rubber as raw material for their production. Crude oil prices have been defined and become the rule. SDP make a good relationship to the buyers by maintaing trust, SDP provide product according buyers needs and necessary technical assistance. Bargaining power of buyers in palm oil is very high, because in the market available difference price and quality of product. The major countries as major buyers of SDP are European Union, China, and India which has little control over price.
6.3 EFE Matrix
Weight
Key External Factors Opportunities 1. Increasing Demand for CPO 2. Rising health issue 3. Availability of land in Indonesia 4. Support by both government 5. Emerging biofuel market Threats 6. Price fluctuation of CPO could lead to lower demand of palm oil 7. Land ownership issues 8. Stiff competition related to plantation expansion 9. Minimum wages enforce by Malaysian government 10. Adverse weather TOTAL WEIGHTED SCORE
Rating Weighted Score
0.13 0.12 0.08 0.11 0.12
4 3 3 3 3
0.52 0.36 0.24 0.33 0.36
0.11 0.07 0.09 0.07 0.10 1.00
1 2 2 2 1
0.11 0.14 0.18 0.14 1.64 4.02
Table 6.1 : EFE Matrix The average total weighted score of EFE is 2.50. So the total weighted score of Sime Darby is 4.02. Sime Darby can be considered as responding to existing opportunities and threat in its industry.
6.4 Competitive Profile Matrix SDB
CRITICAL SUCCESS FACTOR
Product Quality Corporate social responsibility Strategic alliance and partnership expansion market share geographical coverage financial stability customer loyalty product development environmental friendly TOTAL WEIGHTED SCORE
IOI
GAR
Weight Rating Score Rating Score Rating Score 0.13 0.12 0.10 0.08 0.09 0.07 0.10 0.09 0.10 0.12 1.00
4 4 4 3 4 4 4 4 3 4
0.52 0.48 0.40 0.24 0.36 0.28 0.40 0.36 0.30 0.48 3.82
2 3 2 1 2 2 2 3 1 3
0.26 0.36 0.20 0.08 0.18 0.14 0.20 0.27 0.10 0.36 2.15
3 2 3 2 3 3 3 2 2 2
0.39 0.24 0.30 0.16 0.27 0.21 0.30 0.18 0.20 0.24 2.49
Table 6.2 : CPM Matrix For competitive profile matrix, Sime Darby is at first place followed by Golden AgriResources and IOI. This analysis reveals that Sime Darby is stronger than other competitor almost in all areas except for the expansion and product development which are not at fully efficient. 7.0 Internal environment 7.1 IFE Matrix
Key Internal Factors Strengths 1. Diversified business activities 2. World largest listed oil palm plantation 3. Environmentally friendly practices 4. High skilled workers & talented team 5. Top development in bioeconomy and biodiesel Weakness 6. Declining in revenue and PBIT 7. Shortage of workers in plantation industry 8. Depends heavily on upstream operation 9. Lack of skilled plantation labor 10. Young field in Liberia produce no output and unstability in community TOTAL WEIGHTED SCORE Table 7.1 : IFE Matrix
Weight
Rating Weighted Score
0.13 0.12 0.08 0.07 0.10
4 4 3 3 3
0.52 0.48 0.24 0.21 0.30
0.10 0.12 0.10 0.11 0.07 1.00
1 1 1 2 1
0.10 0.12 0.10 0.22 1.53 3.82
The average total weighted score of IFE is 2.50. So the total weighted score of Sime Darby is 3.82. Sime Darby can be considered to have a strong internal position.
7.2 VRIO Framework Resources and
Value
Rarity
Imitability
Competencies
Organizati
Competitive
on
Advantage
Brand Name
Yes
Yes
Yes
Yes
Sustained
Research and Development
Yes
No
No
Yes
Parity
Certified sustainable palm
Yes
Yes
Yes
Yes
Sustained
Yes
Yes
No
Yes
Temporary
oil Diversified Businness Activity Table 7.2 : VRIO Framework Brand name
The first resource identified in Sime Darby is the brand name. Sime Darby Plantaton is consistently known as world's largest plantation. So SDP brand is valuable and quite strong within their rivals in the industry. In Malaysia, Sime Darby Plantation is the largest listed plantation company. Sime Darby brand can be considering as rare because when people thinking of palm oil, Sime Darby is typically the first company that comes to their mind. Brand name is imitable because not all palm oil company can compete with them due to well-known brand name in the entire world. There are high investment made and commitment to maintain the company's reputation for a long time. Besides that, the brand name owned by Sime Darby also had emulated by other competitors. Sime Darby uses brand value when entering the foreign markets to dominate their market share. So the company can organized this resource very well. Therefore, the impact of this resource is sustainable competitive advantage .
Research and development
The second resource identified in Sime Darby Plantation is research & development activity. In order for Sime Darby Plantation to face the challenges of the palm oil sector is make a breakthrough in biotechnology and innovation investment (Sime Darby Plantation, 2014). As an industry leader in research and development, there is a high demand for existing products to be replace by healthier products. Biodiesel is one of the valuable findings that take many years before it was introduced to the public. So research & development activity can be considered as valuable because it also helps SDP in sustain their business and obtain the competitive advantage over other competitors. The resource is not rare because other competitor such as Golden AgriResources and Wilmar International Limited also spend huge money on the research to come out almost similar product at market. However, this resource is not considered as imitable because other palm oil company with good financial records could copy the strategy of SDP. SDP is able to exploit their market share by conduct an intensive research to improve their product and performance. SDP can organize this resource very well. Therefore, the impact of this resource is a competitive parity.
Certified sustainable palm oil
SDP is also highlight as a certified sustainable palm oil producers in the world and produce 2.4 millIion tones of CPO annual output (Sime Darby Plantation, 2014). This resource is valuable because it allowed SDP to control large market share. These resources also can be considered as rare because it has always being observed by other competitor in term of standard palm oil production. This resource also considered as imitable because there are a lots of requirement which must be met and continuous certification assessment by regular body. Besides that, not all
competitors are able to comply with the requirement all the time like SDP. Obviously, SDP can organize this resource very well. Therefore, the impact of this resource is sustainable competitive advantage.
Diversified Business Activity
Sime Darby involved in 5 core sectors which are plantation, industrial, equipment, motors, property and energy & utilities. Sime Darby Plantation is divided into 2 business activity, the first downstream activity, and the second upstream activity. It is valuable because diversified business activity can reduce the business risk because company is not depending on one sector to generate the revenue. This resource is considered as rare because it helps in sustained their competitive advantage by having a highly diversified portfolio in market. This resource is not imitable, because other competitor can diversified their business like SDP if they are provided enough capital. SDP can organize this resource very well. Therefore, the impact of this resource is temporary competitive advantage.
8.0 Strategy analysis and Choice
8.1 SWOT Matrix Strategic analysis of Sime Darby’s performance using the SWOT matrix.
SWOT analysis is a tool used to have a better understanding of the Sime Darby’s business. Most
organizations use a SWOT analysis to make a strategic planning and it can be applied to individual organization, make a comparison between two companies and evaluate several companies (Helms & Nixon, 2010). The purpose of strategic planning is to ensure that the
employees and stakeholder are working to achieve the goals. Research by Wilson & Eilertsen (2010) has shown that organization that use the strategic planning in decision making during the economic crisis have a positive outlook on the future prospect of company’s profit and growth.
However, strategic planning will not give any benefit if it does not involve the financial sustainability and the situation of the company at that time. Strategic planning will be less effective if the organization fails to identify the obstacles that exist. It will become a stumbling block to the organization to be successful.
Besides that, SWOT analysis has been used in identifying the main strategies by the bank to control foreign currency exchange market (Shariatmadaria, Sarfaraz, Hedayat and Vadoudi 2013). A recent study by Boone (2015) has shown that SWOT is used to give a clear picture of the product and the service in the aspect of the competition and its external environment by identify the organization's strengths, weaknesses, opportunities and threats in order to improve the quality of service delivery of blended learning. For developing a benchmarking on supply chain, SWOT analysis can provide information to identify the barriers that exist for purpose of technology transfer (Kumar, Luthra, & Haleem, 2015). SWOT analysis can identify the potential crisis and give an early warning to the business. It is a first step in developing an effective strategy in organization. The positive and negative factor inside and outside of organization that could affect the performance are being view. It can help in identifying the competitive advantage by matching the strength and opportunity. By identifying the competitive advantage, it provides a new way for the organization to outperform their competitor.
However, results of SWOT analysis may be viewed from different perspectives. Some organization may see the arrival of new competition in the market is a threat to the business but for other organization it is the opportunity to explore a new world. As Shariatmadaria et. al (2013) advised, “SWOT f actors are not independent of each other, but it is clear that there is a relationship between them”(p.887). Chaghooshi, Fathi, Omidian and Zarchi (2011) also agree
that SWOT factor are not independent but the dependency on this factor can be determined from the result of internal and external environmental analysis. By having a better understanding of the factor that affect the business, it helps the organization to predict the trends and develop a strategy to achieve the goals. STRENGTH
Diversified business activities World largest listed oil palm plantation Top development in bioeconomy and biodiesel industry. Environmental friendly practices High skilled and talented team
WEAKNESSES
Declining in revenue and PBIT Shortage of workers in plantation industry Depends heavily on upstream operation Lack of skill plantation labor Young field in Liberia produce no output and instability of community THREAT
OPPORTUNITY
Increasing Demand for CPO Rising health issue Availability of land in Indonesia Support by both goverment Emerging biofuel market
Table 8.1 : SWOT Matrix
Price fluctuation of CPO could lead to lower demand of palm oil Land ownership issues Stiff competition related to plantation expansion Minimum wages enforce by Malaysian goverment Adverse weather
STRENGTH
i)
Diversified business activities
Sime Darby involved in 5 core sectors which are plantation, industrial, equipment, motors, property and energy & utilities (Sime Darby Berhad, 2013). The company does not rely on one type of business only to make a profit and maintain the business. Plantation sector was in third place in contributing the revenue in year 2014 and the first and second place was obtained by the motors and industrial sector (Sime Darby Berhad, 2014b). Research by Jiang, Ma, and An (2013) has revealed that by diversify the business over the emerging markets, there are huge benefit that can be gained for pursuing this type of strategy. Additionally, Mitton and Vorkink (2010) found that diversification can affect the company’s risk by influence on stock prices and expected
return. Therefore, the diversification strategy used by the Sime Darby by involving in five sectors of business can result in decreased risk of operation.
Sime Darby’s business spans include the palm oil industry from the upstream to downstream
operation. Recently, Sime Darby has a new refinery in Pulau Laut Kalimantan in Indonesia and they have expected the contribution to be higher with this new facility, and for the industrial sector, Sime Darby involved in mining sector in Australia (Sime Darby Berhad, 2014b). In year 2011, Sime Darby has acquired a portion of the former Bucyrus distribution business where this is a chance to strengthen their presence and provide product and service to customers who involved in the mining sector in Australia (“Sime Darby Buys Bucyrus Distribution Business,”
2011). Sime Darby also a supplier of a heavy equipment and engine, provide a rental services, and purchased second hand machine (Sime Darby Industrial, 2013). For the motor sector, Sime
Darby got a place of KIA assembly and distribution in Taiwan, and involved in BMW operations in Brisbane, Australia and Vietnam (“Sime Darby’s Proposed Acquisition of NBPOL to Enhance EPS,” 2015). For property sector, the higher profit contribution was generated from the Taman
Pasir Putih and City of Elmina (Sime Darby Berhad, 2014b). Sime Darby were listed in one of the country’s top three property f or the award of property excellence awards in 2014 and end up with the second best place in Malaysia (“Sime Darby Property Secures Top Property Developers Award for the Fifth Time,” 2015)
ii)
World largest listed oil palm plantation
Sime Darby is the largest listed plantation company in Malaysia. Sime Darby Plantation is able to produce about 2.47 million tons which is 5% from the world’s crude palm oil annually (Sime
Darby Plantation, 2014b). The palm oil has many uses so the plantation sector is capable of achieving high profit with appropriate strategy. Currently, the plantation sector generates revenue RM 10,953.5 million in year 2014 which equal to 24.9% from total of contribution revenue by all segments and with market capitalization of RM58.6 billion (Sime Darby Berhad, 2014a). High market capitalization will attract the attention of investors because it gives an indication that this organization has a high value in market. However, this factor alone cannot be used in evaluating a business because the company’s debt is not included in market capitalization (Kennon, 2015). Sime Darby plantation focus on research & development to improve the production of palm oil and to explore the biodiesel industries (Sime Darby Plantation, 2013a). For year 2014, the oil extraction rate has increased slightly compared to the year 2013 and has planted more oil palm tree in Liberia (Sime Darby Berhad, 2014b). Nowadays, land is a limited and it is a valuable
resources. However, the demand for land is keep growing and cause the price of land to increase too. Therefore, the production of palm oil needs to be improved in order to maximize the profit by using the limited resources. Thus, the establishment of Research & Development is to achieve those objectives. By holding a title of world’s largest palm oil producer, Sime Darby can get an advantage of
economic of scale. This will help in the process of negotiating to get the best price. However, it does not depend on the size of the business alone. There are also other factors that should be considered too in order for Sime Darby to gain the advantage of economic of scale. This statement are consistent with the finding in Soirinsuo and Mäkinen (2011) where they found that economies of scale exist in timber haulage sector but it depends on other factors as well. It depends on the profit of the company, works are performed by employees of the company itself and whether they use the resources wisely. iii)
Top development in bioeconomy and biodiesel industry.
Verdezyne and Sime Darby Berhad are involved in investment of $48 million for the purpose of technology development of Sime Darby Renewables and also invest another $30million in return for a 30% stake in Verdezyne company (Lane, 2014). Besides that, Sime Darby also involved in the operation of biodiesel. Sime Darby has taken the first step by introducing biodiesel and believed biodiesel will be used in the future soon (Malaysian Palm Oil Council, 2012). This statement makes sense because nowadays people are more concerned about the impact on the environment and the use of biodiesel is less polluting than petrol. When people began to realize the important of using biodiesel and the impact to the environment, the demand of the biodiesel will increase too.
iv)
Environmental Friendly Practices
Sime Darby is committed to have a best practice in plantation sustainability. Sime Darby believes that in order to maintain the business in the long run, the environment must be preserved. The effort can be seen through the Sime Darby’s annual report where there are many initiatives
that demonstrate their concern for the environment. One of the practices is focusing on carbon emission from agriculture. Sime Darby placing a biogas power plant for the purpose of reducing the carbon emission and the performance in 2014 was quite good in which Sime Darby managed to reduce 11% in plantation’s upstream carbon emission. Additional, Sime Darby show a strong commitment to conserve the forest. Some of the effort to conserve the forest is zero burning for areas replanted, prohibited from creating a new plant on peat land and also prohibited to clean the areas with high conservation value (Sime Darby Berhad, 2014b). Besides that, Sime Darby also preserves the ecosystem by held a program such as the plant a tree program and the Cirey Island wildlife sanctuary (Sime Darby Plantation, 2013). v)
High skilled and talented team
Sime Darby provides safety training and safety leadership training to its employee to reduce possibility of accidents at workplace. The effectiveness of these activities can be seen through Sime Darby annual report 2014 in which the lost time injury frequency rate showed a decline from year 2011 until year 2014. To retain skilled workers, Sime Darby monitors their performance two times in a year and identifies their weaknesses so that they can plan an action to close the gaps of the performance of each worker. Sime Darby also emphasizes on continuous learning by provide a leadership skill development program and excellent customer service to
their employees. Currently, the total number of employees in Sime Darby for year 2014 is 103,507 people (Sime Darby Berhad, 2014b). WEAKNESSES i)
Declining in revenue and PBIT
There are many reasons why revenue is decline. Revenue has been decline from the year 2012 until year 2014. One of the reasons is because of the commodity price is keep changing. Palm oil prices may rise sharply when other country such as Indonesia impose tax on the crude palm export but it is only temporary ( “Palm oil falls,” 2015). As mention by Abdulla, Arshad, Bala, Noh, & Tasrif (2014), the purpose of impose tax on export is to raise the government revenue, encourage the downstream operation and any changes on the export tax rate could give effect to Malaysia and Indonesia. For example, if the rate of export tax in Indonesia is lower than Malaysia, then other countries would buy from Indonesia because the price is cheaper. The crude palm oil export tax are expected to increase to 4.5% starting on April 2015 and is believed to affect the volume of crude palm oil export when the importers switched to Indonesia that offer a cheaper price (“CPO export tax tax to go up to 4.5% in April,” 2015). This situation may reduce the volume of purchasing of palm oil from Malaysia and affect the financial performance of organization. Revenue recorded for Sime Darby in year 2012 is RM46,630.50 million, RM46,109 million in year 2013 and RM43,908 million in year 2014 (Sime Darby Berhad, 2014b). This situation clearly shows that Sime Darby has experienced a decline in revenue within these 3 years. If no changes we made by the top management of Sime Darby towards the strategy, the revenue will continue to decline for the next year. Profit before interest and tax or PBIT also declined by 9%
in year 2014 compared to the previous year. Lower plantation revenue is one of the factors that contribute to this decline. ii)
Shortage of workers in plantation industry
Labors can be considered as the backbone of the company to continue the operation. It is easier to blame the workers who do not have the skills compares to the labor shortages situation. If demand for palm oil increase in market, the demand for workers employed in this sector also increased too. Normally, the presence of foreign workers will fill the shortage of workers in the local market but it will cause a problem when all these workers return to their respective countries. Due to a shortage of workers, Malaysia planters face difficulties in making the decision to pay more in keeping their employees (Raghu, 2014). Labor shortages will cause delays in the process of cutting oil palm fruit and leaving fruits to root. This will result in low quality of palm fruit. Other reason why many Indonesian workers returning to their countries is due to better salaries offer to the planters in Indonesia (Chooi, 2012). iii)
Depends heavily on upstream operation
Sime Darby’s upstream operation include the oil palm plantation where there are total of 525,290
hectares planted, estates management, milling of fresh fruit bunches, pink guava and for the downstream operation, Sime Darby involved in the manufacture of oil and fat products, biodiesel based on palm oil, produce pink guava juice, biogas plant and oleochemicals (Sime Darby Berhad, 2014b). Some of the downstream activities require a different skills and knowledge compared to the upstream activities. For example, SDP still hire an Indonesian workers who do not have higher education to cut the oil palm fruit while for biodiesel processing, Sime Darby require a professional workers. This situation is testing the ability of companies to adapt with the
changes in environment and changes in labor market. Besides that, the Performance Management and Delivery Unit have made a statement and asked on the Malaysia plantation companies to engage in downstream activities (Choo, 2014). Depends heavily on plantation will bring a problem if the palm oil prices fall sharply. Sime Darby will only get a higher return from this sector when palm oil prices are high in market. However, among the main causes of the decline of revenue in year 2014 is because of sales volume of crude palm oil is weak, lower fresh fruit brunch, delay in peak cropping and dry weather (Sime Darby Berhad, 2014b). While upstream activities shows a declining in revenue, for the midstream and downstream operation, profit has increased by 40% compared to the year 2013 and this contribution has come from mills, new refinery in Indonesia and sales from segregated and traceable products (Sime Darby Berhad, 2014b). The midstream and downstream activities have a high potential for generating high revenue.
iv)
Lack of skilled plantation labor
After Indonesian introduced an attractive wages to their citizen, there is a huge reduction in the number of workers who work in Malaysia. This is because the minimum wages in Indonesia is now almost equal to the minimum wages in Malaysia, and Sime Darby also provides other benefit such as house, medical services and current daily needs such as oil and rice in order to retain the Indonesian skilled workers (Chew, 2014). Normally, Sime Darby hiring workers from
Indonesia, Myanmar, Nepal and Bangladesh for their plantation sector (Choo, 2014). One of the reason why Indonesian workers has become the priority instead of other countries is because they are faster in cutting, harvesting and collecting oil palm fruit. The downsizing of Indonesian workers will affect the company performance especially in terms of quantity of palm oil that can be collected as local workers have less interest to work in plantation sector. v)
Young field in Liberia produce no output and instability of community
There is a high uncertainty in doing the business of plantation sector in Liberia. Based on the information in Sime Darby annual report in year 2014, total planted of oil palm in Liberia is 10,035 hectare. However, this cultivation area does not give any benefit to Sime Darby because the trees are still in the immature stage. Additional, there is a community issue involving Sime Darby and Liberia (Siakor, 2012). At first, the community is agree to the government’s proposal but changed mind at last minute so the impact of this instability in Liberia is most of the citizen are not working and forest have been cleared and planted with palm oil. Thus, this issue will affect the Sime Darby to implement their strategies in future. OPPORTUNITIES i)
Increasing Demand for CPO
Based on the source from MPOB, we can analyze that percentage of exports since 2010, the percentage of PPO export as compared to CPO production was at 98.1% with CPO production at 16.99 million tonnes and PPO export of 16.66 million tonnes. In year 2011, the PPO export of 17.99 million tonnes and CPO production at 18.91 million tonnes with a percentage of PPO export was at 95.1%. In 2012, CPO production showed that 18.79 million tonnes and PPO export of 17.56 million tonnes or represented 93.5% out of CPO production. Annual report 2014 also
showed that 5.8% increase in crude palm oil for year 2014 compared to the year 2013. Therefore, it clearly defined that CPO price behavior more independent on world demand factors as compared to the domestic factor itself. Actually, there has a reason why demand for CPO was increasing. It is because of the cost of competing vegetable oils such as soy oil, sunflower oil and maize oil. When the producer of this vegetarian oil lowers their production because of bad weather, so will help increase of CPO price. ii)
Rising health issue
Nowadays, we realize the rising of health issue because of the wrongly feeding method. People not concern about their nutrition. Every day the mortality rate caused by health problem occur. So, because of that, people should practice how proper nutrition. Firstly, they should know what kind of food that contributes to become a health issue. When they know about it, they will think about how to reduce the risk. Therefore, palm oil is the best way to take in their nutrition. Actually, the palm oil is likewise an important source of calories and a food staple in the poor communities. Still, particularly in relation to cardiovascular disease, the controversial and open to ongoing research are the overall health impacts. The reason why the palm oil consumed as a food because of to more oxidized rather than in the fresh state. Also, the oxidation appears to be responsible for the health hazard connected to the consuming the palm oil. (Wikipedia, 2015) Costa Rica was conducted the study that linked to palm oil and cardiovascular disease which indicated that replacing palm oil in cooking with polyunsaturated non-hydrogenated oils could reduce the risk of heart attacks, and a 2011 analysis of 23 countries which showed that for each kilogram of palm oil added to the diet annually there was an increase in ischemic heart disease deaths (68 deaths per 100,000 increase) though the increase was much smaller in high-income
countries. However, results from several studies indicate that palm oil provides health benefits, including increasing good cholesterol and reducing bad cholesterol, and that consumption of palm oil does not increase the risk of cerebrovascular disease (Wikipedia, 2015). All vegetable oils contain natural vitamin E in compounds such as tocopherols and tocotrienols. Palm oil has the richest known content of natural tocotrienols. Studies have shown that tocotrienol helps lower bad cholesterol levels and protects the brain against diseases. Palm oil is also high in carotenoids, a rich source of vitamin A. Carotenoids can be stored in the body and be converted to vitamin A when needed. Vitamin A stimulates the immune system and controls the growth and functions of body tissues. Red palm oil, or mildly refined palm oil, has seventeen times more carotenoids than carrots. Palm oil is cholesterol-free and fat free. It is composed mainly of triglycerides of fatty acid with a balanced composition between saturated and unsaturated fatty acids. The latter comprises 40% monounsaturated and 10% polyunsaturated fat (Sime Darby Berhad, 2014b). Therefore, the consumption of palm oil gave the benefit to the people that care about their health indirectly lead the demand of palm oil increase. iii)
Availability of land in Indonesia
Minimums Plantation was represented of Sime Darby Plantation in Indonesia, which was set up in April 2001 and headquarters in Jakarta. It has a presence in eight provinces with a total land bank of 280,274 hectares out of which 203,845 are planted with oil palm, representing approximately 73% of the company’s total planted area (As of January 2015).Besides, with the
71 estates and 23 SOUs (Strategic Operating Units) located in Sumatra, Kalimantan and Sulawesi, Minamas upstream operations produced 4.145 million metric tonnes of fresh fruit bunches (FFB) and 927,803 metric tonnes of crude palm oil in the 2013/2014 financial year. Out
of the 25 PTs in Indonesia, 24 PTs have received the Roundtable on Sustainable Palm Oil (RSPO) certification, while the rest were audited for certification. Today, Minamas Plantation produced 869,912 metric tonnes of certified sustainable palm oil and 184,815 metric tonnes of certified sustainable palm kernels and the total of certified planted hectares are 201,476 Ha (Sime Darby Plantation, 2014c). So, with the availability of land in the Indonesia were given the opportunity for the Sime Darby Plantation to increase their profit in this sector. iv)
Support by both government
Based on annual report 2014, it showed the operational statistic that proved not only Malaysia that makes a production in this sector, but the support of the other government such as Indonesia and Liberia. As we know, Sime Darby Plantation is one of the agribusiness arms of the Sime Darby Group. As an integrated plantation company, Sime Darby Plantation is involved in the full spectrum of the palm oil value chain. The predominantly of oil palm cultivation, harvesting and milling is the current Upstream operation that spread across 534,245 hectares of plant areas in Malaysia, Indonesia and Liberia. The Company’s land bank currently stands at 860,454 hectares
across these three countries (Malaysia, Indonesia and Liberia). While, the downstream business involves the manufacturing of oils and fats products likes Oleochemicals, palm oil-based biodiesel and other palm oil derivatives, as well as the sales and marketing activities of these products. Alongside oil palm, the Company is also involved in other agribusiness activities, the cultivation of rubber as well as in the consumer goods sector, producing cooking oil and fruit juices, among others (Sime Darby Berhad, 2014b). Sime Darby Plantation is the world’s largest producer of Certified Sustainable Palm Oil (CSPO).
It is a leader in plantation sustainability, with 93% of its annual crude palm oil and 94% of its
annual palm kernel production RSPO certified in FY2014. As a co-founding member of the RSPO, the Plantation Division is committed to implementing the independent, approved certification schemes in its Upstream (estates and mills) and downstream (refining) operations Worldwide. Plantation Division employed nearly 80,000 people in FY2014 (Sime Darby, 2014b). v)
Emerging biofuel markets
The important fact here is biofuel market is vital for economic growth. This factor has led to an increased demand of biofuel around the world. According to Kim and Isma'il (2014), one of the reasons why the demand for biofuels increased because this sector will create the job opportunities, assess to new markets, and also contribute to the improvement of agriculture technology. In extending this statement is that biofuel industry requires many workers to run their operation for examples workers in production position and management position. Thus, it will enhance the income opportunity for the citizen in that country. Kim and Isma’il also stated that biofuel markets give a positive impact to rural area and promote a good local health environment. It is because some of the priorities in the policy of biofuel production are to reduce the level of greenhouse gases thus giving a positive impact to environment. THREATS i)
Price fluctuation of CPO could lead to lower demand of palm oil
There are several of the largest importers of palm oil such as China, India and Europe. The euro zone debt crisis and slowing food demand in India caused by the crisis that arises like global economic downturn and China will lead to a decrease demand of palm oil as these countries would spend less on imports during these times. The surplus of supply of palm oil in palm oil
producing countries like Malaysia and Indonesia caused of less demand and it will push the price of crude palm oil down. The price of crude palm oil affected because of import policies and laws of countries that import crude palm oil. Take an Australia as an example. They offered a measure to enforce labeling palm oil as a product ingredient instead of veggie oil. If this bill was reached, consumers who believe that palm oil is bad because palm oil plantations have led to deforestation, could easily avoid products that contain palm oil. This could lead to lower demand for palm oil-based merchandise, thus requiring the price of crude palm oil. (Futures, o. p., 2014) ii)
Land ownership issues
One of the main issues that faced by Sime Darby Plantation is a land ownership plantation. The issue in relation to the plantation area in Indonesia is conflict with local communities with regard to the ownership of the land caused by lack of clarity as to land status and the legal ownership of land. Despite effort taken by the government, communities and other stakeholder, this land problem has been a classic issue for years in Indonesia. Investor, therefore, will need to perform a careful check on land status prior to acquiring a piece of land to avoid possible land problems in the future. Another land issue is the limitation on the ownership of the land area of a plantation company. The
Ministry
of
Agriculture
No.26/Permentan/OT.140/2/2007
through
Article
12
of
its
Regulation
regarding Guidance of Licensing Plantation Business
stipulates that a plantation company can have a maximum of 100,000 hectares in plantation area or twice that if the plantation area is located in Papua. In practice, however, the limit is subject to condition, especially in the case of a new plantation company needing to acquire a piece of land
for its plantation area. This is due to another regulation issued by the State Minister of Agriculture / National Land Agency, No.2/1999 in year 1999, regarding Location Licenses. Based on the above National Land Agency regulation, a plantation company must obtain a Location Licenses from the Land Office prior to acquiring land for the plantation area. This regulation, however, stipulates that a palm plantation company can only own / control a maximum of 20000 hectares in one province or twice that in Papua province and 100000 hectares throughout Indonesia. Consequently, a plantation company that operates in one province can only have maximum 20000 hectares based on regulation No.2/1999 instead of 100000 hectares is based on regulation No.26/Permentan/OT.140/2/2007. Furthermore, the limitation in regulation No.2/1999 applies not only to individual palm plantation companies, but also to other palm plantation companies which constitute a group of companies (Rianto, 2010) iii)
Stiff competition related to plantation expansion
Sime Darby faces an intense competition in market. Sime Darby has to compete with IOI who is also committed to have a good oil palm practices. Felda Global Venture also operating in highly diversified business such as palm upstream and downstream, rubber and sugar. International competitor of Sime Darby is the Golden Agri-Resources which is located in Indonesia. This competitor also put pressure on Sime Darby by having a similar operation and also put pressure of who have a better practice in environmental responsibility. iv)
Minimum wages enforce by Malaysian government
Enforcement of minimum wages in Malaysia will increase the operational cost of Sime Darby. It means that, Sime Darby have to pay higher salary to their estate workers if previously they pay low wages to their workers. According to Cheah (2015), the enforcement of minimum wages could influence the production cost to rise as much as 5% and decreasing in earning as much as 10%. So the minimum wages could be a threat to Sime Darby if the contributions and the quality of work provided by the employee are still at the same level despite an increase in total salary. This statement is consistent with the finding in Carpio, Nguyen, and Wang (2012) where they used firm-level data from the Indonesia survey and finds that minimum wages have a negative effect on employment and could lead to job losses. However, they also stated that the negative impact depends on the size of company and the impact is felt more by small companies instead of big company and workers who have less education will be effected when the enforcement of minimum wages is take place. Even though Sime Darby is one of the big company, but most of their estate workers are an ordinary person and have low education so the workers will also be exposed to the loss of jobs. v)
Adverse weather
Adverse weather condition could affect the number of harvesting and the growth of palm trees. According to US Department of Agriculture (2015), flood in Malaysia recently has affected the production of crude palm oil. It also stated that the production of crude palm oil has been declining total of 15% in December 2014. Kelantan, Terengganu and Pahang are not the largest contributor to the palm oil production but have been the most affected by this flood. Based on the information in US Department of Agriculture, the flood has delayed the collection of palm fruit and transportation infrastructures are damage. This situation will lead to low quality of palm fruits thus also affect the rate of yield.
8.2 SWOT Analysis STRENGTH (S) INTERNAL FACTORS
EXTERNAL FACTOR
OPPORTUNITY (O) O1 Increasing demand for CPO O2 Rising health issue O3 availabity of land in Indonesia O4 Support by both goverment O5 Emerging biofuel market
S1 Diversified business activities S2 World largest listed oil palm plantation S3 Environmentally friendly practices S4 High skilled workers & talented team S5 Top development in bioeconomy and biodiesel STRATEGY SO
THREAT (T) T1 Price fluctuation T2 land owvership issues T3 Stiff competition related
All activities, programs and products are being publicize for social awareness and to promote sustainability (S3 and O3) Conduct an intensive research and development to produce high quality of biofuel (S5 and O5) STRATEGY ST Acquirer Indonesian plantation by buying their shares and make them as subsidiary (S2, T2 and T3)
to plantation expansion T4 minimum wages enforce
by malaysia government T5 adverse weather
Table 8.1 : Alternative Strategy based on SWOT Matrix
WEAKNESSES (W) W1 Declining in revenue and PBIT W2 Shortage of workers in plantation industry W3 Depends heavily on upstream operation W4 Lack of skilled plantation labor W5 Young field in Liberia produce no output and unstability in community STRATEGY WO
Build strong alliance with Indonesia (W1, O3 and O4) Provide additional training for the labours (W4 and O1) calloboration with local and outside employment agency (W2 and O4) STRATEGY WT Explore new market and land availability to other South East Asian countries such as Thailand and Cambodia (W5 and T2) Retain workers by including better compensation, bonus, health & life insurance (W2 and T4)
8.3 QSPM
Key External Factors Opportunities 1. Increasing Demand for CPO 2. Rising health issue 3. Availability of land in Indonesia 4. Support by both government 5. Emerging biofuel market Threats 6. Price fluctuation of CPO 7. Land ownership issues 8. Stiff competition related to plantation expansion 9. Minimum wages enforce by malaysian goverment 10. Adverse weather TOTAL Strengths 1. Diversified business activities 2. World largest listed oil palm plantation 3. Environmentally friendly practices 4. High skilled workers & talented team 5. Top development in bioeconomy and biodiesel Weakness 6. Declining in revenue and PBIT 7. Shortage of workers in plantation industry 8. Depends heavily on upstream operation 9. Lack of skilled plantation labor 10. Young field in Liberia produce no output & unstability in community TOTAL TOTAL ATTRACTIVENESS SCORE
Table 8.2 : QSPM
STRATEGIC ALTERNATIVES 1 2 3 Acquirer Indonesian Explore new market Retain workers by plantation & land availability including better bonus & insurance Weight AS TAS AS TAS AS TAS
0.13 0.12 0.08 0.11 0.12
4.00 4.00 4.00 -
0.52 0.32 0.44 -
3.00 2.00 3.00 -
0.39 0.16 0.33 -
2.00 1.00 1.00 -
0.26 0.08 0.11 -
0.11 0.07 0.09 0.07 0.10 1.00
2.00 2.00 2.00 4.00 -
0.22 0.14 0.18 0.28 -
0.13 0.12 0.08 0.07 0.10
3.00 3.00 3.00 -
0.39 0.36 0.21 -
4.00 4.00 2.00 -
0.52 0.48 0.14 -
1.00 1.00 4.00 -
0.13 0.12 0.28 -
0.10 0.12 0.10 0.11 0.07
2.00 3.00 3.00
0.24 0.30 0.21
1.00 4.00 4.00
0.12 0.40 0.28
4.00 1.00 1.00
0.48 0.10 0.07
3.00 3.00 3.00 2.00 -
0.33 0.21 0.27 0.14 -
1.00 4.00 4.00 1.00 -
0.11 0.28 0.36 0.07 -
1.00 2.07
1.81
1.61
Based on the result in QSPM techniques, the analysis indicates that Sime Darby should acquirer Indonesian plantation with total attractiveness score of 2.07.
9.0 Recommendation
Based on the TOWS analysis, Strategy SO (Strength and Opportunity) have shown that all activities, programs and products Sime Darby are being publicize for social awareness and to promote sustainability. This because in recent years, Sime Darby has given committed to environmental concerns such as the focus on carbon emissions from farming. Therefore, to show that Sime Darby is concerned about the environment, they have protection of environmental and conversation of the biodiversity for the purpose of reducing carbon emissions and other activities such as forest conservation efforts with zero burning for areas replanted, prohibited establishing new plant in peat and the like. In addition, SO strategy is also focused on biodiesel market by conduct an intensive research and development to produce high quality of biofuel. As we know nowadays, people are more concerned about the use of biodiesel or biofuel compared to petrol because it is one way to minimize environmental pollution. Then this is an opportunity for SDP to increase plant and production of palm oil especially in Indonesia because of the availability of land suitable for oil palm.
For WO strategy (Weaknesses and Opportunities) is to build an alliance partnership with Indonesia. Sime Darby Malaysia must build a strong relationship with Indonesia because Indonesia is a large land area and suitable for the palm oil exploitation that could have increase revenue palm oil products to Sime Darby. Besides that, the Roundtable on Sustainable Palm Oil also recognized and shows an acceptance of Indonesia under their program. In addition, the Sime
Darby also need to provide additional training for workers so that they perform their duties efficiently in order to produce palm oil, which is high quality and can produce products according to the request within the on specific time. Furthermore, Sime Darby will need to work with local and foreign employment agencies for skilled workers in the agricultural industry and have received its support from both the government of that country.
For ST strategy (Strength and Threat) is Sime Darby can take over competitors in the Indonesia plantation companies by buying their shares and make them as subsidiaries. Although there is a threat in terms of the issue of land owners, especially in Indonesia, such as plantation area in conflict with local communities about the land owners and threats related with a variety of strong competition such as Golden Agri Resources and Felda Global Venture in the development of oil palm plantations but Sime Darby have power over other competitors because it is the largest and top listed oil palm plantation in the world. Then, when the Sime Darby to work with the Indonesian government and landowners in resolving the issue of property, then it is the opportunity to be an acquirer Sime Darby plantations in Indonesia with ease.
For WT strategy (Weaknesses and Threat) Sime Darby may be trying to explore new markets and the availability of land to Southeast Asian countries such as Thailand and Cambodia for oil palm plantations. In addition, Sime Darby is also necessary to maintain workers by offering attractive salary or other rewards as compensation, bonus, health and a better life for workers and can also use the latest agricultural technologies for minimum de pendence on human resource.
Based on the table QSPM above, there are three alternative strategies for consideration by the acquirer Sime Darby Plantation Indonesia, explore new markets and the availability of land and retain employees by including compensation, bonus, health and insurance. Based on QSPM table also shows that there are seven factors that could not affect the strategic alternative. There is rising of health issue, emerging biofuel market, adverse weather, environmentally friendly practices, top development in bioeconomy and biodiesel, declining in revenue and PBIT, lack of skilled plantation labor and while others affect the choices made. Refer to table QSPM, we can see that even the second choice have more score 4 of attractiveness scores (AS) compared with the first option, but the overall total attractiveness scores of the first choice is the acquirer plantation in Indonesia is highest, then the most appropriate strategic alternative for Sime Darby chose is the acquirer Indonesian plantations with a total score higher points is 2.07 compare with explore new markets where total score attractions is 1.81 and retain workers by including better bonus and insurance is only 1.61.
10.0
Conclusion
In a nutshell, Sime Darby Plantation operates palm oil and rubber plantation in Indonesia, Malaysia and Liberia. Sime Darby is one of the largest palm oil producer in the world but for the year 2014, SDB Plantation division faced with the declined issue by 6.2% if want to compared with the prior financial year primarily due to lower sales volume by 7.4% as a result of the lower fresh fruit bunch (FFB) production by 7.0%. Besides that, FFB production in Indonesia operation declined by 13.2%, mostly due to delays in peak cropping and prolonged dry weather. The impact of lower sales volume was partially offset by the 5.8% increase in CPO price realized. To reduce or avoid the problem that contribute to SDB issue for plantation division is a, the y must to
